From Megan McArdle
it is [among] the graduate schools that the collapse has begun. That doesn’t mean that graduate education will go away (after all, neither tulip bulbs nor stock exchanges went away when those bubbles collapsed); rather, the market will get dramatically smaller, with the shakiest programs going bust, others retrenching, and the top ones continuing to draw more students than they can enroll. If it spreads to college, we should expect to see the same pattern: top tier schools surviving and even thriving, while lesser ranked schools pitched into financial crises by declining enrollment.
In some sense, the most fundamental question about the economics of higher education is: what it the relevant margin along which a degree adds to an individual’s future earnings?
In particular, if there is a marginal return of close to zero for “additional students who otherwise would not have been pursuing the degree,” then a lot of people need to stop and think.
On a possibly related note, Bryan Caplan is looking for uncharitable reasons for economists to stick to the human capital model of education.
I go with social pressure/ideology. Progressive ideology is in the DNA of the American Economic Association. In downplaying ideology, Bryan is treating Republican allegiance as if it were a proxy for classical liberalism. I see Daniel Klein’s research on the profession as suggesting otherwise.
By the way, I take a similarly uncharitable view for explaining the persistence of Quackroeconomics.
You might add (perhaps to quackroecnomics) the misleading use of exceptional cases and averages all over the media.
Some number of people aspire to be professional athletes, most surely having no hope, and all surely drawn by the fame and fortune gained by less than about 100 people in the US.
I have met people who thought they’d go into computer science based on what high level technical people at MSFT, Google, etc. are paid. Rather greater odds of success, but still waaaay harder than at least one young man thought.
Averages have a similar problem. If the “average” oil engineer is getting $80K to start, but our subject is hopeless at engineering of any sort, they will not make anything like that average without transforming themselves into someone rather different. Nobody wants to think they’re the left half of the distribution – but of course half of us are….
Perhaps colleges should be required to report the in-field earnings of graduates at the 10%, 50%, 85% levels, and forbidden to report averages or even medians…
Surely no parent wants to admit that their child is the left half of the distribution.
Furthermore, for parents who may admit such, if their best hope of an $80K + starting salary for their child is to marry a spouse on the right half of the distribution in a high paid major, then, getting into the right school, regardless of major, may be a rational objective.
I was sad to read Megan’s speculations about why law school is expensive:
“Do you have a sense of how that happens? The legend at business school–from which I graduated in 2001 with high five figure debt–was that the universities were using their professional schools as cash cows to subsidize the rest of the university
But perhaps the faculty is being paid lots and lots? . . . she said, wryly.”
I expect this from a person on the street, but from an econ blogger, it makes me sad. Clearly a law school or business school is going to charge whatever students are willing to pay. So long they have more students than spots, why *wouldn’t* they raise the prices?
Daublin, you are correct, of course, on the economics of pricing at a school with more applicants than room. But out at Directional U, where the MBA classes meet at night (when the undergrads are off drinking), the program is typically responsible to the larger school for generating a cash surplus. I was a recruiter for one of these programs. The pressure to enroll students was quite high. It was interesting work.
“Clearly a law school or business school is going to charge whatever students are willing to pay.”
Except that, as it turns out, the tuition that “students are willing to pay” is paid via a high risk loan made at lower-than-market interest rates that [presently] is only ~60% likely to be repaid by the student with the rest being guaranteed by federal taxpayers.
Take away the availability of federally-guaranteed student loans and federally-underwritten student grants, and let’s see what happens to tuition levels when they no longer have “more students than spots.”
Present tuition levels are simply the indirect way that higher ed captures federal subsidies. Students are simply the pass-through mechanism. Disrupt that cozy arrangement, and you’ll see an educational Solyndra-like result.
Unemployment rate goes up, graduate school applications and attendance goes up. Unemployment rate goes down, graduate school applications and attendance goes down. Simple as that. Too soon to predict the great schooling inflection point.
I think there is great value in learning, it’s just that there’s not much going on at these supposed institutions of “higher learning,” not because the students are slackers, as they will all tell you, but mostly because the curricula are almost worthless. There is a great opportunity for online learning startups to come in and fill this gap, if they can identify what is worth learning and what isn’t. So far, I don’t see any of them being able to tell the difference, which is why they simply slap the existing college curricula online and won’t get very far. But when one of them figures this out, that’s it, the universities will be kaput.